Zhu Min or China's Faustian IMF-Lagarde Bargain

In Chinese, gweilo (鬼佬) is a traditional epithet against "foreign devils" that, due to its common use, has lost much of its condescending tone. Indeed, Westerners often describe themselves as such in the PRC to deflate suspicion about themselves. Today, however, we have a potential Faustian bargain with the many (sorry) gweilo who run international financial institutions that may see to it that China sticks the knife into its fellow LDCs when it comes to the matter of IMF succession. Merde!--as Lagarde might exclaim in her less guarded moments.

I've just attended a very interesting talk by Yves Tiberghien who should be familiar to those interested in Asian political economy. This particular presentation concerned China's G-20 role. As you all know, my lost cause of the moment (I have many) is someone from an LDC becoming the next IMF chief to succceed the now-infamous Dominique Strauss-Kahn. We are down to two candidates, France's Christine Lagarde who's favoured by the Europeans and Mexico's Agustin Carstens who's favoured by a handful of Latin American countries. Supposedly, China is still considering throwing support behind Carstens (someone must be chosen by month's end). From our favourite official publication, China Daily:

Agustin Carstens, governor of the Mexican central bank, said on Thursday that China promised to take his bid to be the first non-European managing director of the International Monetary Fund (IMF) seriously and that the Chinese government is in the process of making a final decision.

After making a quick visit to China, Carstens told a press briefing in Beijing on Thursday that he has held "very fruitful" discussions on his candidacy with his Chinese counterpart Zhou Xiaochuan and with Finance Minister Xie Xuren. He insisted that his position as a non-European will be an advantage in the race and that his experience in Latin America will be particularly useful because the IMF position should be filled by an expert in crisis management.

I have to put this down as a (fairly likely) rumour, but the word in policy circles according to Yves Tiberghien is that the die is already cast. The primary interest of China at this time is to get one of its own in a high-ranking position within striking distance of becoming IMF managing director (that is, deputy managing director #2 or #3). So, when this post becomes open once again, he will be well-placed to become the first IMF head from an LDC. Which, I must point out, is also Carstens' strategy--while he may not win this time around, he is hoping to garner enough name recognition to be the front-runner next time.

Instead, China is placing its bets on Zhu Min. He has been the deputy governor of the PBoC and was a special advisor to Strauss-Kahn before the latter's ignominious fall. In fact, the China Daily article continues to allude to this desire of the PRC:

"Carstens' trip to China may be of little use because the country will probably endorse Lagarde," said Guo Tianyong, economist at the Central University of Finance and Economics. He said Lagarde's proposal is in line with China's interests, and that her gathering of wide support will influence China's decision.

To win over China to her candidacy, Lagarde said she supported the decision to increase China's voting rights at the IMF from about 4 percent to nearly 6.4 percent. She also said Zhu Min, the former deputy governor of the Chinese central bank and the current economic adviser to the IMF managing director, should play a more significant role in the fund.

China now being the IMF's second largest contributor, the supposed deal goes like this: the PRC will throw its weight behind Lagarde for the top post, but it expects the Europeans to do the same with a deputy managing director post for Zhu Min:

While the competition for the top slot is becoming fiercer, there is also a jostle among candidates wanting to occupy a deputy-managing director post. That has drawn much attention from Chinese analysts, who believe a Chinese has a better chance at obtaining that position. "It's time for China to recommend a Chinese to be deputy managing director, or even acting managing director of the fund," Guo said. "Zhu Min's experience is well qualified for that position."

Sun Lijian, deputy dean of the School of Economics at Fudan University, said Zhu Min has a good chance at winning the position. "It is very natural that a Chinese person should be in that post, because China has performed well in the financial downturn and contributed a lot to the world economy, which is well recognized throughout the world," Sun said.

He added that the weak recovery of the US and European economies will make the IMF prefer to raise more capital from China and other emerging economies. "Zhu Min's position as deputy head looks logical, especially since China is already the second-largest economy in the world," Sun said. "European countries should give their full support."

Has China sold out its third world colleagues for the sake of its own interests? I certainly hope Tiberghien is mistaken, but I doubt that he is.

UPDATE: Also see Sebastian Mallaby in Foreign Affairs on the question of IMF succession.